The Technical Indicator: Charting a fragile market recovery attempt, S&P 500 reclaims 200-day average

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Technically speaking, the major U.S. benchmarks continue to whipsaw amid a prolonged market volatility spike.

Against this backdrop, the S&P 500 has reclaimed its marquee 200-day moving average, raising the flag to a fragile, but potentially viable, market recovery attempt.

Before detailing the U.S. markets’ wider view, the S&P 500’s SPX, -1.64%  hourly chart highlights the past two weeks.

As illustrated, the S&P has rallied sharply from major support (2,954).

Recall that last week’s close (2,954) matched a key inflection point, detailed previously.

The index has subsequently reversed sharply, rising to reclaim its 200-day moving average, currently 3,049. The bullish reversal signals a potentially viable recovery attempt to the extent the S&P maintains a posture atop support broadly spanning from about 3,028 to 3,050.

Meanwhile, the Dow Jones Industrial Average DJIA, -1.89%  has also rallied from notable support.

Recall that last week’s low (26,481) matched the June low (26,480).

This level marked a 13-month range bottom, the Dow’s lowest since January 2019. Put differently, the Dow narrowly averted a 52-week low by a one-point margin.

From current levels, gap resistance (26,775) is followed by the more distant 200-day moving average, currently 27,244.

Against this backdrop, the Nasdaq Composite COMP, -1.61%  has narrowly maintained major support.

The specific area matches the 200-day moving average, and the November breakout point, levels better illustrated on the daily chart below.

Widening the view to six months adds perspective.

On this wider view, the Nasdaq has registered a bullish reversal near the breakout point. Recall three inflection points, detailed previously:

• The 200-day moving average, currently 8,402.
• Major support matching the July peak, also the late-2019 breakout point (8,339).
• Support matching the September peak (8,243).

Against this backdrop, last week’s low (8,264) matched support, in the broad sweep, and the index has rallied sharply.

On further strength, notable resistance matches the breakdown point (9,088). A retest is underway early Tuesday.

Looking elsewhere, the Dow Jones Industrial Average has reversed sharply from the June low (24,680) bottoming last week within one point.

On further strength, an inflection point matches the October gap, circa 26,700, and is followed by the more distant 200-day moving average. A sustained break back atop the 200-day would mark a step toward stabilization.

Meanwhile, the S&P 500 has spiked from five-month lows.

The sharp reversal places it atop the 200-day moving average, currently 3,049, opening the path to a potentially viable rally attempt.

Separately, note that the S&P’s longer-term technical bias remains bullish to the extent it maintains a posture atop the 200-day.

The bigger picture

Collectively, the major U.S. benchmarks continue to whipsaw amid a prolonged market volatility spike.

Amid the cross currents, last week’s plunge marked the biggest single-week downdraft since 2008. The downturn has been punctuated by Monday’s massive spike, each benchmark’s biggest daily point gain on record.

Moving to the small-caps, the iShares Russell 2000 ETF has violated its 200-day moving average, currently 156.58, pressured amid a sustained volume spike.

Conversely, the small-cap benchmark has maintained its 13-month range bottom, an area matching the August low (144.25).

Meanwhile, the SPDR S&P MidCap 400 ETF plunged from all-time highs to 13-month lows across just six sessions.

The MDY has subsequently reversed from the February low, rising to reclaim first resistance. Recall that the top of the gap (336.83) matches the breakdown point (336.82).

Looking elsewhere, the SPDR Trust S&P 500 SPY, -1.66%  has rallied sharply from five-month lows.

The bullish reversal places the SPY atop its 200-day moving average, currently 304.60, a widely-tracked longer-term trending indicator. A rally attempt is underway to the extent the SPY sustains the break atop this area

Placing a finer point on the S&P 500, the index has broadly maintained an important technical floor.

The three-year chart above is a weekly view of the S&P 500. Each bar on the chart represents one week.

Recall that major support rests at 2,873 and 2,954, levels broadly defining about an 18-month former range top, detailed previously.

These areas have indeed draw buyers on the first test. Last week’s low (2,855) was punctuated by 99-point bullish reversal, and a session close (2,954) precisely matching major support. (The session close also marked a weekly, and monthly, close.)

More immediately, the S&P has subsequently rallied atop three key inflection points:

• The 200-day moving average, currently 3,049.
• The S&P’s 10% correction mark of 3,047.
• The late-2019 breakout point of 3,028.

The swift reversal atop resistance signals a potentially viable rally attempt, to the extent the S&P maintains a posture atop these areas.

Nonetheless, sustainability and follow-through remain an open question. Tuesday’s early session low (3,027) has effectively matched support. The next several sessions will likely add color.

Summing up the backdrop

All told, the S&P 500 has reclaimed key resistance, and a fragile recovery attempt is underway. The rally attempt remains viable to the extent the S&P maintains support broadly spanning from about 3,028 to 3,050.

More broadly, the recent market downdraft has inflicted material damage. The S&P’s intermediate-term backdrop supports a bearish bias pending repairs. The quality of the prevailing rally attempt will likely add color.

Also see: Charting a bearish technical tilt, S&P 500 plunges to caution zone.

Tuesday’s Watch List

The charts below detail names that are technically well positioned. These are radar screen names — sectors or stocks poised to move in the near term. For the original comments on the stocks below, see The Technical Indicator Library.

Drilling down further, the 10-year Treasury note yield TNX, -4.14%  has plunged to record lows, pressured amid a persistent safe-haven trade.

Against this backdrop, the Federal Reserve has cut its benchmark federal funds rate by a half-point early Tuesday, with a surprise inter-meeting move.

The yield’s response to the policy action will add color. Recall that a durable broad-market low will not likely be established until yields stabilize.

Amid the cross currents, the yield has whipsawed early Tuesday — after the Fed’s rate cut — though it is vying for its first daily upturn since Feb. 19. A positive close, which is not certain, would signal that the yield may have established at least an intermediate-term low.

Tactically, an eventual close atop gap resistance (1.22) would signal waning bearish momentum, opening the path to a potentially viable market rally attempt. Conversely, a violation of the record low (1.06) may signal that more work is needed before yields stabilize.

Revisiting U.S. sector damage

Moving to U.S. sectors, the market downdraft has inflicted broadly-based damage. Five groups exemplify the prevailing backdrop:

To start, the Financial Select Sector SPDR XLF, -3.11%  has violated its 200-day moving average, pressured amid a sustained volume spike.

Against this backdrop, the group has also maintained its six-month range bottom (26.40).

Tactically, the 200-day moving average, currently 28.64, closely matches the mid-2019 range top. The pending retest from underneath should add color. A swift reversal atop this area would place the brakes on bearish momentum.

Meanwhile, the SPDR S&P Regional Banking ETF KRE, -3.79%  has been more aggressively pressured, briefly tagging 14-month lows.

The downdraft punctuates a head-and-shoulders top defined by the November, December and February peaks.

Tactically, the former range bottom (50.18) is followed by the breakdown point, a level matching the 200-day moving average, currently 53.92. The group’s backdrop supports a bearish intermediate- to longer-term bias pending a close atop these areas.

Looking elsewhere, the iShares Transportation Average ETF IYT, -1.43%  has plunged to 14-month lows, pressured amid global-growth concerns.

The downturn punctuates a failed test of trendline resistance, as well as a violation of the 200-day moving average.

From current levels, the former range bottom (175) pivots to resistance. A close higher would mark an early step toward stabilization.

Against this backdrop, the Invesco QQQ Trust QQQ, -1.62%  tracks the Nasdaq 100 Index, offering a large-cap technology sector proxy.

As illustrated,the QQQ remains relatively resilient, recently maintaining the 200-day moving average. The successful test preserves a bullish longer-term bias.

Tactically, the breakdown point (217.20) is followed by the 50-day moving average, currently 221.14. An eventual close atop these areas would incrementally strengthen the bull case.

Similarly, the VanEck Vectors Semiconductor ETF SMH, -1.49%  has maintained its 200-day moving average, rising respectably from the primary trending indicator.

And here again, a retest of the breakdown point, circa 137.00, is currently underway.

On further strength, gap resistance (140.70) is followed by the 50-day moving average, an area defining the prior uptrend. Eventual follow-through atop these areas would more firmly strengthen the bull case.

Summing up the sector backdrop

Collectively, the market downdraft has inflicted broadly-based U.S. sub-sector damage. Generally speaking, technology remains a pocket of relative strength while the financials have been more aggressively pressured amid plunging Treasury yields.

The pending tests of resistance, detailed above, should be a useful bull-bear gauge over the next several sessions.

Editor’s Note: This is a free edition of The Technical Indicator, a daily MarketWatch subscriber newsletter. To get this column each market day, click here.

Still well positioned

The table below includes names recently profiled in The Technical Indicator that remain well positioned. For the original comments, see The Technical Indicator Library.